Fair Value Gaps

What is a Fair Value Gaps (FVGs)?

A Fair Value Gap represents an imbalance in price delivery caused by rapid institutional movement. When price moves impulsively in one direction, it often skips over areas of liquidity where two-way trading could have occurred. This inefficiency appears as a three-candle pattern where the middle candle’s body and wicks fail to overlap with the previous or following candle. The distance between those candles defines the Fair Value Gap.

These areas are essential to Smart Money traders because they mark zones where market makers and institutions did not have time to execute all their pending orders. As a result, price often returns to these regions to "rebalance" before resuming its original direction. This return to an FVG is referred to as mitigation, and it helps confirm the validity of the displacement that caused it.

FVGs can form across multiple timeframes and are often stacked, showing where liquidity voids remain within the structure. A smaller FVG nested inside a higher timeframe one can strengthen directional bias, especially when aligned with significant order flow events. This confluence often signals the presence of algorithmic trading behavior or institutional accumulation.

In trading, Fair Value Gaps can act as both entry and target zones. When price re-enters an FVG during a trending market, traders often look for continuation setups. In contrast, in a ranging market, partial fills of these gaps may signal potential reversals or short-term corrections. When paired with volume or displacement confirmation, FVGs become one of the most reliable components of institutional trading analysis.

How to Configure FVG Indicator?

Show Labels - Toggle to show/hide labels.

Colors - Set of colors for Bullish and Bearish FVGs

• Bullish FVG - Applied to bullish FVGs that are active.
• Bearish FVG - Applied to bearish FVGs that are active.

Mitigation

• Mitigation - Toggle to show/hide the mitigation feature.
• Mitigation Type - Choose how strictly the indicator confirms that a gap has been mitigated (filled).
  • Close Inside - Gap is mitigated when candle closes inside the zone.
  • Wick Inside - Gap is mitigated when the wick (high/low) touches inside the zone.
  • Close > 50% - Gap is mitigated when the candle closes past the consequent encroachment level.
  • Wick > 50% - Gap is mitigated when the wick (high/low) crosses the consequent encroachment level.
  • Close Outside -Gap is mitigated only when the close happens fully outside the opposite side.
  • Wick Outside - Gap is mitigated only when the wick crosses (high/low) outside the opposite side.
• Mitigated Color - Applied to zones that have been mitigated/filled.

Consequent Encroachment

• CE (Mid-point) - Toggle to show/hide the Consequent Encroachment line.
• CE Color - Set the color for the consequent encroachment midpoint line.

Max FVG Displayed - Controls how many FVGs are to be displayed on screen.

Distance from LTP - Set how far the gap boxes extend into the future from the current candle.